Recommendations & StrategiesQuestion 75 of 100
An adviser must recommend a suitable rollover for a client leaving an employer with a 401(k). The option that generally preserves tax deferral without immediate taxation is:
a.Taking a full cash distribution
b.A direct rollover to a traditional IRA
c.Withdrawing and spending the funds
d.Converting to a Roth and ignoring the tax bill
Explanation
A direct rollover from a 401(k) to a traditional IRA preserves tax deferral and avoids immediate taxation and withholding. A cash distribution triggers taxes and possible penalties. A Roth conversion is taxable, so the client must plan for that liability.
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